Guide · Coverage · 3 min read

Whole life insurance, explained

Whole life is meant to stay in place for life, provided you keep up the premiums. Here is what that means in practice.

What you pay and what it pays

On most whole life policies the premium stays the same, and the payout holds while you keep paying. It costs more than term coverage of the same size because it lasts for life and grows a cash value.

What the cash value does

Part of each payment builds a cash value that grows inside the policy. You can often borrow against it or, in some cases, surrender the policy for it.

Some insurers, mostly mutual companies and fraternal societies, pay dividends on participating policies. Dividends are not promised and can change from year to year, so ask how they are paid out before you count on one.

Loans and the death benefit

Interest is charged on a policy loan, and whatever is still owed when the insured person dies is subtracted from the death benefit, and an unpaid loan can put the policy at risk.

Final expense style plans

Smaller whole life plans are often sold for funeral and burial costs. Some are issued with no health questions, and others ask only a few, which is called simplified issue.

Many of these plans use a graded benefit. If the insured person dies from an illness during the early policy years, the insurer may return the premiums paid, sometimes with interest, instead of the full amount. Read that part of the contract closely.

This guide gives general information and does not address your own policy. Your contract and your insurer decide what applies to you.